Tuesday, 16 February 2016

Recession Friendly Investments

Economic recession is a very real and a very scary situation that countries have been in before and this will continue to take place. Recession has very dire consequences such as high unemployment rates, fall in profitability of firms, fall in living standards. While governments continue to try and fight it off, it is very important to take necessary steps to ensure your well-being during a time of financial crisis.

Take a look at how you would be affected during such a time:

  1. Employment: When recession hits, one thing that starts happening is that people start being fired. It happens in companies big or small. You never know if you will be laid off next and end up being in a perpetual state of fear. In case of a scenario where you are laid off, where will you find another job. Finding employment will become tougher than it already is
  2. Getting a business loan: At a time of financial crisis, you will never hear about how well an industry is doing because they’re not doing well at all. This means that the government has to take necessary steps to ensure that the right industries are being stimulated so that the economy doesn’t collapse completely. At this point of time the bank doesn’t have much money left to give out to other industries, mainly start-ups and SMEs
  3. Getting a personal loan: As the amount of money in the economy dips, you start to struggle to pay bills. When families fall short on money, they turn to banks and other financial institutions to get loans but the problem there is that even though they’ve become more relaxed with their eligibility criteria, they haven’t forgotten about it completely. Which means while it’s easier than before to get a loan, it’s still quite a task. At the same time, most of the money has anyway been pumped into the bigger industries so personal loans are not a priority for banks to disburse.
  4. Investment options: The economy is failing bit by bit and it’s taking all investment opportunities with it. Be it real estate or stocks, all prices are falling and falling drastically. There won’t be any place where you can invest without losing all your money.
Enter Peer-to-Peer Lending.

Peer-to-Peer lending is one financial instrument which will survive the recession. While rates will fall and the money to be made will be relatively less, even then there will be money to be made. Here is why:

  1. Borrow: With majority of the money being pumped into the priority sectors, all borrowers will turn to alternative finance solutions. This will result in a great demand for capital funding which will come from private investors. P2P lending will, at that time, receive a great increase in the demand for personal as well as business loans.
  2. Invest: With such a boom in the demand for loans, ample supply must also be provided. This is where private lenders, who have no other financial instruments left to invest in, will move in. Private money at this point becomes extremely valuable as personal and business loans start being funded at competitive rates.

While when recession hits us we will see a great decline in the rates given by market lenders, it will still be a much better bet than any other options that will be available in the falling market. Peer-to-Peer lending is here to stay whether during economic boom or recession.

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